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SIGA > SEC Filings for SIGA > Form 10-Q on 1-May-2014All Recent SEC Filings

Show all filings for SIGA TECHNOLOGIES INC

Form 10-Q for SIGA TECHNOLOGIES INC


1-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes to those statements and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical information, the following discussion and other parts of this Quarterly Report contain forward-looking information that involves risks and uncertainties.

Overview

We are a company specializing in the development and commercialization of solutions for serious unmet medical needs and biothreats. Our lead product is Arestvyrô (tecovirimat), also known as ST-246, an orally administered antiviral drug that targets orthopoxviruses. While Arestvyr is not yet licensed as safe or effective by the U.S. Food & Drug Administration, it is a novel small-molecule drug that is being delivered to the Strategic National Stockpile under Project Bioshield.

Lead Product - Arestvyr

On May 13, 2011, we signed the BARDA Contract pursuant to which we agreed to deliver two million courses of Arestvyr to the Strategic Stockpile. The base contract, worth approximately $463 million, includes $54 million related to development and supportive activities and contains various options to be exercised at BARDA's discretion. The period of performance for development and supportive activities runs until 2020. As originally issued, the BARDA Contract included an option for the purchase of up to 12 million additional courses of Arestvyr; however, following a protest by a competitor of the Company, BARDA issued a contract modification on June 24, 2011 pursuant to which it deleted the option to purchase the additional courses. Under the BARDA Contract as modified, BARDA has agreed to buy from SIGA 1.7 million courses of Arestvyr. Additionally, SIGA will contribute to BARDA 300,000 courses manufactured primarily using federal funds provided by HHS under prior development contracts. The BARDA Contract as modified also contains options that will permit SIGA to continue its work on pediatric and geriatric formulations of the drug as well as use Arestvyr for smallpox prophylaxis. As discussed in Part II, Item 1, "Legal Proceedings," the amount of profits we will retain pursuant to the BARDA Contract may be adversely affected by the outcome of PharmAthene's action against SIGA.

We believe Arestvyr is among the first new small-molecule drugs delivered to the Strategic Stockpile under Project BioShield. Arestvyr is an investigational product that is not currently approved by FDA as a treatment of smallpox or any other indication. FDA has designated Arestvyr for "fast-track" status, creating a path for expedited FDA review and eventual regulatory approval.

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our consolidated financial statements, which we discuss under the heading "Results of Operations" following this section of our Management's Discussion and Analysis. Some of our accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Our most critical accounting estimates include the valuation of stock-based awards including options and warrants, revenue recognition, impairment of assets and income taxes. Information regarding our critical accounting policies and estimates appear in Item 7, Management's Discussion of Analysis and Financial Condition and Results of Operation, of our Annual Report on Form 10-K for the year ended December 31, 2013, as filed on March 10, 2014. During the three months ended March 31, 2014, there were no significant changes to any critical accounting policies or to the related estimates and judgments involved in applying these policies.

Results of Operations

Three months ended March 31, 2014 and 2013

Revenues from research and development contracts and grants for the three months ended March 31, 2014 and 2013, were $549,000 and $1.3 million, respectively. The decrease in revenue of $779,000, or 59%, includes the impact of a $437,000 decrease in grant revenues related to Lassa fever and a $325,000 decrease in revenues from our federal contracts supporting the development of Arestvyr.

Selling, general and administrative expenses for the three months ended March 31, 2014 and 2013 were $3.1 million and $3.0 million, respectively.


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Research and development expenses were $2.8 million for the three months ended March 31, 2014, a decrease of approximately $832,000 or 23% from the $3.6 million incurred during the the three months ended March 31, 2013. The decrease is mostly attributable to a decline of $807,000 in employee compensation arising from the Optimization Plan. Separately, a $395,000 expense relating to an inventory write-down during the quarter was primarily offset by lower direct vendor-related expenses supporting the development of Arestvyr, dengue antivirals, Lassa fever antivirals and high-throughput screening.

During the three months ended March 31, 2014 and 2013, we incurred direct costs of $626,000 and $1.5 million, respectively, on the development of Arestvyr. During the three months ended March 31, 2014, we spent $101,000 on internal human resources dedicated to the drug's development and $525,000 mainly on manufacturing and clinical testing. During the three months ended March 31, 2013, we spent $168,000 on internal human resources dedicated to the drug's development and $1.3 million mainly on manufacturing and clinical testing. From inception of the ST-246 development program to-date, we invested a total of $57.3 million in the program, of which $10.4 million supported internal human resources, and $47.0 million were used mainly for manufacturing, clinical and pre-clinical work. These resources reflect research and development expenses directly related to the program. They exclude additional expenditures such as patent costs, allocation of indirect expenses, and other services provided by NIH and DoD.

Patent preparation expenses for the three months ended March 31, 2014 and 2013 were $286,000 and $458,000, respectively. These expenses reflect our ongoing efforts to efficiently protect our lead drug candidates in varied geographic territories.

Changes in the fair value of liability classified warrants to acquire common stock are recorded as gains or losses. For the three months ended March 31, 2014 and 2013, we recorded a gain of $156,000 and a loss of $974,000, respectively. The warrants and rights to purchase our common stock were recorded at fair market value and classified as liabilities.

Interest expense for the three months ended March 31, 2014 was $141,000 consisting of interest on outstanding debt. Interest expense for the three months ended March 31, 2013 was $374,000, reflecting interest on outstanding long-term debt and certain vendor payable arrangements.

For the three months ended March 31, 2014 and 2013, we incurred pre-tax losses of $5.6 million and $7.2 million and corresponding tax benefits of $2.2 million and $2.3 million. The effective tax rate during this period was 39.9%. Our effective tax rate was impacted by recurring items such as state and local taxes, non-deductible expenses in addition to an income tax benefit related to the manufacturer's deduction under Internal Revenue Code Section 199.

The recognition of a valuation allowance for deferred taxes requires management to make estimates and judgments about our future profitability which are inherently uncertain. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. If the current estimates of future taxable income are reduced or not realized, for example, based on the outcome in the PharmAthene litigation described in Part II, Item 1, "Legal Proceedings," the Company's assessment regarding the realization of deferred tax assets could change. Future changes in the estimated amount of deferred taxes expected to be realized will be reflected in the Company's financial statements in the period the estimate is changed with a corresponding adjustment to operating results. Changes in estimates may occur often and can have a significant favorable or unfavorable impact on the Company's operating results from period to period.

Liquidity and Capital Resources

On March 31, 2014, we had $107.1 million in cash and cash equivalents compared with $91.3 million at December 31, 2013.

Operating activities
Net cash provided by operations for the three months ended March 31, 2014 was $16.6 million and net cash used in operations for the three months ended March 31, 2013 was $8.1 million. In 2014, the Company received approximately $25.4 million from BARDA for the delivery of product, partially offset by $3.6 million of cash payments to CMOs for the manufacture, development and other supportive activities for Arestvyr. In 2013, the cash used in operating activities related to expenditures for the manufacture of Arestvyr in addition to development and supportive activities for Arestvyr.

Investing activities
Capital expenditures during the three months ended March 31, 2014 and 2013 were approximately $14,000 and $269,000, respectively, reflecting purchases of fixed assets in the ordinary course of business. In 2013, expenditures included certain furniture and equipment for new office space in New York.


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Financing activities
Cash used in financing activities was $821,000 during the three months ended March 31, 2014. We repaid $500,000 of the term loan in accordance with the loan repayment schedule and repurchased $416,000 of common stock to meet minimum statutory tax withholding requirements. The cash outlay was offset by proceeds of $95,000 from exercises of options and warrants to purchase common stock.

Cash provided by financing activities was $1.0 million during the three months ended March 31, 2013. We received $1.2 million from exercises of options and warrants to purchase common stock which was partially offset by $178,093 for the purchase of common stock to meet minimum statutory tax withholding requirements.

Other
We have incurred cumulative net losses and expect to incur additional expenses to perform further research and development activities. As of March 31, 2014, we have delivered an aggregate of approximately 1.2 million courses of Arestvyr to the Strategic Stockpile, of which 259,000 courses were delivered at no cost to BARDA in accordance with the BARDA Contract. We have received payment of approximately $121.5 million for the courses of product delivered to date; additionally, we have received $61.5 million for up-front payments and achieved milestones related to the BARDA Contract. We believe that the funds received from the BARDA Contract (refer to Note 2 to the Condensed Consolidated Financial Statements) together with our existing capital resources and continuing government contracts and grants will be sufficient to support our operations beyond the next twelve months. As discussed in Part II, Item 1, "Legal Proceedings," our ability to support our operations may be adversely affected by the outcome in the litigation with PharmAthene. The financial statements do not include any adjustment relating to the recoverability of the carrying amount of recorded assets and liabilities that might result from the outcome of these uncertainties.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Safe Harbor Statement

Certain statements in this Quarterly Report on Form 10-Q, including certain statements contained in "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. The words or phrases "can be," "expects," "may affect," "may depend," "believes," "estimate," "project" and similar words and phrases are intended to identify such forward-looking statements. Such forward-looking statements are subject to various known and unknown risks and uncertainties and SIGA cautions you that any forward-looking information provided by or on behalf of SIGA is not a guarantee of future performance. SIGA's actual results could differ materially from those anticipated by such forward-looking statements due to a number of factors, some of which are beyond SIGA's control, including, but not limited to, (i) the risk that potential products that appear promising to SIGA or its collaborators cannot be shown to be efficacious or safe in subsequent pre-clinical or clinical trials, (ii) the risk that SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market potential products, (iii) the risk that SIGA may not be able to obtain anticipated funding for its development projects or other needed funding, including from anticipated governmental contracts and grants (iv) the risk that SIGA may not complete performance under SIGA's contract (the "BARDA Contract") with the U.S. Biomedical Advanced Research and Development Authority ("BARDA") on schedule or in accordance with contractual terms, (v) the risk that SIGA may not be able to secure or enforce sufficient legal rights in its products, including intellectual property protection, (vi) the risk that any challenge to SIGA's patent and other property rights, if adversely determined, could affect SIGA's business and, even if determined favorably, could be costly, (vii) the risk that regulatory requirements applicable to SIGA's products may result in the need for further or additional testing or documentation that will delay or prevent seeking or obtaining needed approvals to market these products, (viii) the risk that one or more protests could be filed and upheld in whole or in part or other governmental action taken, in either case leading to a delay of performance under the BARDA Contract or other governmental contracts, (ix) the risk that the BARDA Contract is modified or canceled at the request or requirement of the U.S. government, (x) the risk that the volatile and competitive nature of the biotechnology industry may hamper SIGA's efforts to develop or market its products, (xi) the risk that changes in domestic and foreign economic and market conditions may affect SIGA's ability to advance its research or its products adversely, (xii) the effect of federal, state or foreign regulation, including drug regulation and international trade regulation, on SIGA's businesses, (xiii) the risk that our outstanding indebtedness may make it more difficult to obtain additional financing, (xiv) the risk that the U.S. government's responses (including inaction) to the national and global economic situation may affect SIGA's business adversely,
(xv) the risk that our internal controls will not be effective in detecting or preventing a misstatement in our financial statements, (xvi) the risk that some amounts received and recorded as deferred revenue ultimately may not be recognized as revenue, (xvii) the risk that the recent remand to the Delaware Court of Chancery could result in a burdensome award of damages, which could materially and adversely affect the Company, (xviii) the risk that the remand may result in extended and expensive


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litigation, (xix) the risk that our litigation with PharmAthene may impede our efforts to continue to grow the Company, and (xx) the risk that we may not be able to establish our intended positions or otherwise not prevail in any further court proceedings.

More detailed information about SIGA and risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this presentation, is set forth in SIGA's filings with the Securities and Exchange Commission, including SIGA's Annual Report on Form 10-K, for the fiscal year ended December 31, 2013 as filed on March 10, 2014, and in other documents that SIGA has filed with the Commission. SIGA urges investors and security holders to read those documents free of charge at the Commission's Web site at http://www.sec.gov. Interested parties may also obtain those documents free of charge from SIGA. All forward-looking statements are current only as of the date on which such statements were made. We do not undertake any obligation to update publicly any forward-looking statement to reflect events or circumstances after the date on which any such statement is made or to reflect the occurrence of unanticipated events.

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